PepsiCo Reports Third Quarter 2013 Results

17 Oct 2013 --- PepsiCo, Inc. reported core earnings per share of $1.24 for the third quarter and organic revenue growth of 3.3 percent for the quarter. Organic revenue grew 3.9 percent year to date and core constant currency EPS increased 12 percent year to date. Reported net revenue grew 2 percent year to date.

"We're pleased with our performance. PepsiCo has delivered double-digit core constant currency earnings per share growth year to date, despite ongoing macro-economic volatility in many markets. We're able to perform well in these conditions because our brands are strong, our product portfolio is on-trend, and our geographic footprint is broad and diverse. Importantly, we have continued to make marketplace investments to strengthen our foundation for sustainable growth," said Chairman and CEO Indra Nooyi.

"We remain focused on growing our business by building our brands, innovating, driving marketplace execution, and delivering higher returns on invested capital through disciplined capital allocation. Our year-to-date results give us confidence in achieving our 2013 financial goals and we continue to believe that we have the right strategies in place to create long-term value for our shareholders."

(1)Please refer to the Glossary for the definitions of Non-GAAP financial measures including core, constant currency, organic and management operating cash flow.

Operating and Marketplace Highlights
- Organic revenue increased 3.9 percent year to date and core constant currency operating profit increased 8 percent year to date.  Reported operating profit increased 6 percent year to date.
- Core gross margin expanded 70 basis points in the quarter reflecting implementation of effective revenue management strategies.
- Core operating margin expanded in the quarter, including an 8 percent increase in advertising and marketing expense.  Reported operating margin declined 35 basis points in the quarter.
- PepsiCo Americas Foods organic revenue grew 7 percent in the quarter driven by mid-single-digit organic revenue growth at Frito-Lay North America and double-digit organic revenue growth in Latin America Foods. Reported net revenue increased 5 percent in the quarter driven by mid-single-digit net revenue growth at Frito-Lay North America and high-single-digit net revenue growth at Latin America Foods.
- In the U.S., the company's largest market, grew value, volume and unit market share in salty snacks in the quarter.
- Despite a challenging North America LRB category, NAB sequentially improved both volume and value market share performance in measured channels while leading the industry in net price realization at retail.
- AMEA organic revenue grew 6 percent in the quarter reflecting organic volume growth in both snacks and beverages, despite political and marketplace volatility in certain markets, notably Egypt and India.  Year-to-date, AMEA organic revenue increased 11 percent.  Reported net revenue in AMEA declined 3 percent in the quarter and 3 percent year to date, reflecting the impact of structural changes and foreign exchange translation.
- Developing and emerging market organic revenue grew 9 percent in the quarter.  On a reported basis, developing and emerging market net revenue grew 4 percent in the quarter reflecting structural changes and unfavorable foreign exchange translation.
- On track to deliver targeted $900 million of productivity savings during 2013 and $3 billion in productivity savings in 2012 through 2014.
- Management operating cash flow (excluding certain items) was $5.5 billion year to date, an increase of 12 percent. Cash flow from operations was $6.7 billion year to date, an increase of 30 percent.
- Net capital spending was 4.1 percent of net sales over the past four quarters, within our long term objective of at or below 5 percent of net sales.
- On track to return a total of $6.4 billion to shareholders in 2013 through approximately $3.4 billion in dividends and approximately $3.0 billion in share repurchases.

Summary of Third Quarter Financial Performance
- Organic revenue grew 3.3 percent and reported net revenue grew 1.5 percent.  Structural changes, principally the refranchising of the company's beverage operations in Vietnam, negatively impacted reported net revenue performance by nearly half a percentage point and foreign exchange translation had a more than 1-percentage-point unfavorable impact in the quarter.
- Core constant currency operating profit rose 3 percent reflecting increased advertising and marketing expense and $28 million of incremental investments. Reported operating profit declined 1 percent and included the net impact of mark-to-market losses on commodity hedges, and certain restructuring and impairment and merger and integration costs in both 2013 and 2012.The incremental investments negatively impacted operating profit growth by 1 percentage point.
- The company's core effective tax rate was 25.5 percent and the reported effective tax rate was 25.4 percent, both below the prior year quarter due to geographic mix shift in the current year and the lapping of an adjustment to international deferred taxes in the prior year, partially offset by the lapping of tax benefits from an acquisition in the prior year.  The reported tax rate was also impacted by lapping net tax expense related to gains recognized on commodity hedges in the prior year.
- Core EPS was $1.24 and reported EPS was $1.23. Core EPS includes a $0.01 impact from incremental investments. Core EPS excludes a net impact of $0.01 per share related to mark-to-market net losses on commodity hedges and a nominal impact each from merger and integration charges and restructuring and impairment charges.  Mark-to-market gains and losses on commodity hedges are subsequently reflected in core division results when the divisions recognize the cost of the underlying commodity in net income.